24 Oct, 2009
HK caps mortgage limits to cool market
Move comes amid surge in property prices, lifted by rich mainland buyers
HONG KONG: The territory's central bank moved yesterday to slow a surge in luxury property prices, driven by rich buyers from mainland China by limiting mortgages, amid growing concern over a real estate bubble.
Last week, Hong Kong's Chief Executive Donald Tsang warned of a potential property bubble - as one luxury flat in the city sold for a world record HK$71,280 (S$12,800) per sq ft - and said the government could release more land for sale.
The Hong Kong Monetary Authority (HKMA) said yesterday it would cap the mortgage limit for luxury property at 60 per cent, down from 70 per cent, and limit mortgage loan values.
'It is very difficult to detect if a bubble is there,' Mr Norman Chan, chief executive of the HKMA, told reporters.
'But what we're concerned about is, given the very sharp rise in prices in this top segment of the property market, the risk, or credit risk, to these mortgage loans to these properties has increased.'
The HKMA said the 60 per cent mortgage cap would apply to properties valued at HK$20 million or more. For properties below that, the 70 per cent ratio will remain but the maximum loan amount will be capped at HK$12 million.
'We do not directly target price levels,' Mr Chan said.
Prices have surged by 26 per cent this year, and by more in the luxury segment, where mainland Chinese are snapping up apartments. Many of them are entrepreneurs who are flush with cash and would not be deterred by the mortgage limit, analysts say. Mr Chan acknowledged that but said there was still a portion of people needing mortgages.
He also warned homebuyers and banks to account for an eventual rise in interest rates from record lows.
Financial Secretary John Tsang plans to discuss the government's concerns with developers next week, a source familiar with the situation said yesterday. Data showed housing construction this year is down 60 per cent from three years ago.
As cheap money globally is boosting fund flows into Asian assets and driving up property prices, Singapore's Government last month moved to release more land and make it harder for home buyers to defer payments.
Hong Kong's currency peg to the US dollar forces it to track US interest rates, which are expected to remain low for some time.
Private housing construction between January and September this year totalled 5,100 units, government data showed yesterday. For the whole of last year, construction totalled 8,000 units - fewer than half the 17,300 units in 2006 and below the 15,000 in 2005
Martin Koh/ Sherry Tang